Event overview:
On April 28, Pilbara minerals (PLS), an Australian lithium supplier, announced that the company completed the spot auction of lithium concentrate in the fourth battery material exchange (“BMX”) on April 27. The auction quantity is 5000 dry tons of concentrate, and pls intends to accept the highest bid of US $5650 / dry ton (sc5.5, FOB, Port Hedland). Including freight and lithium concentrate converted into SC6 After 0 standard grade, it is equivalent to the price of about US $6250 / dry ton (sc6.0, CIF, China), and shipment is expected to start in mid June 2022.
Analysis and judgment:
The lithium concentrate auction was US $6250 / ton, and pls had long expected
On April 27, the transaction price of PLS’s fourth lithium concentrate auction was US $5650 / ton (sc5.5, offshore Hedland port), which was converted into sc6.5 0, plus the freight of 86 US dollars per ton / ton, which is converted into US $6250 / ton CIF China. According to the processing fee of 25000 yuan / ton of lithium carbonate, the cost of lithium carbonate is 392200 yuan / ton (including value-added tax). According to the auction terms, the bidder now needs to sign a sales contract with the company, require to pay a 10% deposit in the next few days, and submit an irrevocable letter of credit from an approved bank in the first week of May. Shipment is expected to start in mid June 2022. Pls expects that the auction will be held more regularly as the production of ngungaju continues to increase and more unsettled lithium concentrate is available. Pls said that the price received on the BMX platform indicates that there is a serious shortage of lithium raw material supply. Compared with the usual long-term off take sales arrangement, the auction further distinguishes the sales of emerging spodumene spot market, highlights the ability of PLS to participate in the market and outperforms its peers in the sales price received. As early as March 9, miningnews net. The website reported the views shared by Ken brinsden, part-time CEO of PLS, on the price of lithium concentrate. He said that according to the current price of lithium salt chemicals, if BMX auction was held today, he would not be surprised if the price exceeded US $6000 / ton according to pls’s estimate of about 20% profit margin of lithium salt processing plant. At present, mtcatlin has announced that the long-term association price of 2022q2 lithium concentrate is US $5000 / ton and the transaction price of PLS auction is US $6250 / ton, which actually provides guidance for the continuous rise of the long-term association purchase price of lithium concentrate under the background of tight supply.
Lithium mining company will become a winner in the supply chain, and the profit sharing proportion is advancing towards the expected value of Australian enterprises
At the exchange of RRS investors’ luncheon on March 31, Ken brinsden, part-time CEO of PLS, said that in view of the significant shortage of investment in mines in recent years and the huge investment in battery materials, battery manufacturing and final electric vehicle manufacturing in the supply chain, mining enterprises will become winners in the supply chain and the downstream marginal income will be compressed. As the raw materials are far behind, we can only put the incentive price on the table, otherwise the raw material supply projects will not grow. As early as the beginning of 2021, pls and Galaxy resources, which had not been merged at that time, publicly stated that the strongest shortage in this round was the upstream resource side, and advocated that the profit sharing mode of upstream resources and downstream processing should be 73 or 82. From 2021 to 2022q1, the price of lithium salt in China has been rising rapidly, while the pricing of lithium concentrate in Australia lags behind for one quarter, and the upstream and downstream profit distribution ratio does not meet the expectations of Australian mining enterprises. Taking the average selling price of 2022q1pls concentrate at US $2650 / ton as an example, we calculate that the tax included cost of processing lithium carbonate is 186000 yuan / ton. Assuming that the quotation of lithium salt plant is consistent with the website and there is no time lag, the average selling price of carbon tax included in 2022q1 is 420000 yuan / ton, the net profit per ton of lithium salt plant is roughly 18 Shenzhen Cereals Holdings Co.Ltd(000019) 0000 yuan / ton, the mine end profit corresponding to single ton of lithium salt of PLS is 8 Shenzhen Tagen Group Co.Ltd(000090) 000 yuan / ton of lithium salt, and the profit is divided into upstream mines: the downstream lithium salt plant is still 3:7, The profit sharing situation of the last cycle has not been changed. Based on the long-term cooperative price of mtcatlin in the second quarter of US $5000 / ton, it is assumed that the average sales price of electric carbon including tax in 2022q2 is 430000 yuan / ton, and the profit sharing ratio of upstream mine and downstream lithium salt plant is 66:34. Based on yesterday’s auction price of US $6250 / ton, assuming that the average sales price of electricity and carbon including tax in 2022q3 rises to 450000 yuan / ton due to the acceleration of downstream construction, and the profit sharing ratio of upstream mine: downstream lithium salt plant reaches 8:2. After the rapid rise of lithium salt price, although the rise of lithium concentrate price lags behind one quarter, it will certainly rise. The upstream resources have the strongest industry position. Obviously, the current industrial chain sharing model is advancing towards the expectation of Australian mining enterprises, and the lithium salt processing plant will face the situation of profit compression.
The epidemic affected short-term demand, and the price of lithium salt probably rebounded after the epidemic
Recently, due to the continuous weakening of the procurement demand of downstream material plants, the price of lithium salt has shown a downward trend. Considering that the long-term association price of raw material lithium concentrate increased significantly month on month in the second quarter, and there is still room for rise in the third quarter, the cost will support the lithium salt price to maintain a high level, especially the lithium salt processing production line with spodumene as raw material, the profit space of single ton lithium salt is compressed, and there is a strong sense of price support. We judge that the short-term lithium price is under pressure due to the weakening demand caused by the epidemic, but the epidemic improves. After the demand recovers, the lithium price may rise to the previous high. The price of mtcatlin’s long-term agreement in the second quarter was US $5000 / ton. It is estimated that PLS’s long-term agreement is also within this range, and the corresponding cost per ton of lithium carbonate is RMB 323800 / ton (including value-added tax). According to the profit sharing expectation of Australian mining enterprises, the price probability of lithium concentrate will continue to rise in the third quarter. Taking the price of lithium concentrate auctioned by PLS yesterday as an example, the corresponding cost per ton of lithium carbonate is 392200 yuan / ton (including value-added tax). Under the support of high cost, the future decline of lithium salt price is limited. Tesla said at the quarterly report telephone exchange meeting on April 21 that the epidemic has led to the lack of production time for several weeks in the factory in Shanghai. The output of Q2 may be slightly lower than that of Q1, but q3-q4 will increase significantly, and the annual output is expected to reach 1.5 million (worldwide). We believe that this is not just the situation and plan faced by Tesla, a new energy vehicle enterprise, but the common plan and goal of all enterprises in the whole industry. They will rush to complete the annual sales volume in 2022 in q3-q4. Therefore, the weakening downstream demand of Q2 lithium carbonate will be reversed in the second half of the year, and the price of lithium carbonate will rise with a high probability at that time.
Investment suggestions:
More than 60% of China’s lithium salt output comes from lithium concentrate imported from Australia. At this stage, with the continuous rise in the price of lithium concentrate and the sharp increase in the processing cost of lithium salt, there is little room for maneuver in the price of lithium salt. The profits of the industrial chain have been completely transferred to the upstream lithium resources, and the ton profit differentiation between lithium salt processing plants and integrated enterprises will become more and more obvious. It is suggested to pay attention to the upstream and downstream integrated enterprises. It is recommended to pay attention to [ Youngy Co.Ltd(002192) ], which is promoting the 2.5 million T / a lithium ore concentration project in yuanyangba, and the Lijiagou spodumene mining and beneficiation project is under construction. In the future, it will join hands with large shares of Dongchuan energy investment to integrate and develop the lithium ore resources in Ganzi and Aba Prefecture [ Sichuan New Energy Power Company Limited(000155) ]. The beneficiaries include [ Tianqi Lithium Corporation(002466) ], which has been increasing production in the next five years and can achieve large-scale production through OEM. The reserves of lithium mica resources are rich.The, [ Jiangxi Special Electric Motor Co.Ltd(002176) ] is being processed for the exploration and mining of Xikeng lithium mica mine.
Risk tips:
1) the growth of downstream consumer demand is less than expected;
2) the development progress of lithium concentrate is less than expected;
3) the supply and demand of lithium salt have improved significantly, and the price of lithium salt has dropped rapidly
4) rapid expansion of lithium concentrate supply capacity in Australia.
